The Role of the taxes in Assessment of Becoming Leading Economic Indicators often Change Prior to Large Economic Adjustments

Abstract

One of the central predictions of growth theory, old and new, is that income taxes have a negative effect on the pace of economic expansion. In the Cass-Koopmans version of the neoclassical model and in the Lucas (1988) model, a higher income tax rate reduces the steady-state ratio of physical capital to effective labor and leads to a temporary decline in the rate of growth. Increases in income taxes lead to permanent declines in the rate of economic expansion.